Street’s predictable response to the Fed’s promise to add $200 billion in available credit to banks to encourage lending. After staging the biggest rally in five years, the market has settled back into a state of self-doubt.
Market players are little the like the now deposed New York Governor. They want it both ways. Spitzer (better known as "Client Nine") wanted to be a "player" while maintaining his stern family-guy crusader image. Wall Street wants a bail-out for financial institutions while still expecting the Fed to cut rates by three-quarters of a point. Spitzer was forced out of office. Will Wall Street fare any better?
If business is war, then the only true casualty of this conflict has been the dollar. After gaining nearly 1.6 percent on the Yen following the Fed announcement --- the biggest move in six months --- almost half the gains were erased before the bell rang on Wall Street. At the same time, the Dollar fell to a record low of $1.55 against the Euro. Apparently, despite the Fed’s best efforts, there still remain significant misgivings about the ability of the banks to break the lending gridlock or to weather the churning seas of their own growing credit losses.
The Dollar simply can’t get a break. Because the market is so fixated on interest rate differentials, its getting sand kicked in its face by every bully at the beach. It’s gotten so bad, that even the Persian Gulf oil emirates are considering uncoupling their currency valuations from the Dollar. Bankers in Qatar, for example, are complaining that the crumbling Dollar is stoking inflation.
So what does this all mean?
The Dollar, like the "Empire State" governor, is in deep do do --- and the news is going to get worse before it gets better. As the U.S. economic slowdown deepens, it appears likely that the Dollar will extend its losses against most of the world’s major currencies for the next six months. The moral of the story … stay away from high-priced prostitutes and stay short the dollar!
Although the Euro may find a ceiling at around $1.57 and the Yen may stall at $1.00, there will continue to be trade opportunities with other currencies paired with the
Dollar. Since mid-summer, the Canadian has had a bit of pull back. But as energy prices rise in conjunction with the weakening Dollar, the Canadian, along with other resource driven currencies like the Aussie and Kiwi will be likely beneficiaries. Additionally, if interest rates remain below in 5% in Switzerland, the Franc will continue to get attention from carry-traders and seekers of a safe haven.
Just to show you how short-sighted Wall Street players have become; the biggest question on everyone’s lips is not how we boost the U.S. economy or shore-up the sinking Dollar, but rather, "what did Elliot Spitzer really get for $5500 an hour?" I'm surprised that some bright Wall Street analyst has yet to opine that the inflated cost of these high-priced hookers is a direct result of the shrinking dollar. The next thing you know, we're going to have the "Spitzer Index" as a future measure of national economic health. Like meals out or the purchase of flat screen TV's, discretionary spending on hookers may be just as valid an indicator of consumer activity.
All of us have our own "private hell." But it seems that Elliot's along with the U.S. Dollar, is going to hotter than most.
To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.
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